OS Intro

Nigel Slack and Michael Lewis, Operations Strategy, 2nd Edition, © Nigel Slack and Michael Lewis 2008

Slide 1.1

An Introduction to Operations Strategy


Slide 1.2

What is Operations Strategy

Operations + Strategy


Slide 1.3

What is operations?

According to the Input-Transformational-Output model, Operations Management can be defined as

“the activity of managing the resources and processes that produce and deliver goods and services.”


Slide 1.4

Operations management and strategy requires analysis at three levels

Flow between operations

Analysis at the level of the supply network

Analysis at the level of the operation

Flow between processes

Analysis at the level of the process Flow between resources


Slide 1.5

What is operations?

Operations Management relates to the management of the value addition of inputs to transform them into outputs.

It does this so as to:

• Reduce Costs

• Increase Revenue

• Reduce Investment

• Increase Development


Slide 1.6

What is strategy?Strategy is many things: plan, pattern, position, ploy and perspective.

Strategy is ubiquitous. It can be found at the highest levels of corporate, governmental, military and organizational endeavor and in small, medium and large units. It is everywhere.

Strategy is an abstraction, a construct. It has no concrete form or substance.

Strategy is the art of the general. In part, it is about the preparations made before battle, before the enemy is engaged. But it is also about avoiding battle and making combat unnecessary.

Strategy is a general plan of attack, an approach to a problem, the first step in linking the means or resources at our disposal with the ends or results we hold in view.

Strategy is direction and destination. At one and the same time strategy says, "We are headed there — by this path."

Strategy is a set of decisions made. What business are we in? What products and services will we offer? To whom? At what prices? On what terms? Against which competitors? On what basis will we compete?


Slide 1.7

What is strategy?

Strategy is involved in areas where the horizon is long term, where there is a competition for the use of resources, and where the objective is to realize advantage over your competition.


Slide 1.8

Strategy and Operations

Strategic Management Operational Management

AmbiguousComplex

Routinized

Organization wideFundamental

Operationally Specific

Long-term Implications Short-term Implications

There are basic differences in the nature of strategic management and operations management. The fact that the qualities required for involving one in strategic change are different from those required for operational control, has to be recognized.


Slide 1.9

How is operations strategy different from operations management?

Timescalee.g. capacity

decisions Dem

and

1 – 12 months

Short-term

Operations management

Long-term

De

ma

nd

1 – 10 years

Operations strategy


Slide 1.10


Level of analysisConcerned with the

macro operation (level of the firm)

Micro


Macro

Operations strategy


Slide 1.11


Level of aggregation(Concerned with resources at an aggregated level)

Detailed


Aggregated

Operations strategy

‘Can we give tax services to the small business market in

Antwerp?’

‘What is overall business advice

capability compared with other capabilities?’


Slide 1.12


Level of abstraction(Concerned with the conceptual)

Concrete


Philosophical

Operations strategy

‘How do we improve our purchasing procedures?’

‘Should we develop strategic alliances with

suppliers?’


Slide 1.13

Operations strategy is …

‘… the total pattern of decisions …

… whilst managing the risks of misalignment’.

… through the on-going reconciliation of market requirements and operations resources …

… and their contribution to overall strategy…

… of any type of operation ...

… that shape the long-term capabilities …

… so as to achieve a sustainable fit between the two …


Slide 1.14

Operations management and strategy requires analysis at three levels

Flow between operations

Analysis at the level of the supply network

Analysis at the level of the operation

Flow between processes

Analysis at the level of the process Flow between resources

Strategic analysis

Operational analysis


Slide 1.15

ProfitTotal assets

OutputTotal assets

ProfitOutput= ×

Decomposing the ratio profit/total assets to derive the four strategic decision areas of operations strategy

OutputTotal assets

OutputCapacity

Fixed assetsTotal assets

CapacityFixed assets

Utilisation Working capital Productivity of fixed assets

= × ×

ProfitOutput

RevenueOutput

CostOutput

Average revenue

Average cost

=

Operations strategy decision areas

Capacity Supply network

Process technology

Development and organisation


Slide 1.16

What is operations strategy?

• Four perspectives on operations strategy

• The top-down perspective – operations strategy should interpret higher-level strategy

• The bottom-up perspective – operations strategy should learn from day-to-day experience


Slide 1.17

The four perspectives on operations strategy – top-down, bottom-up, market requirements and operations resources

Top-down

Operations strategy should interpret higher level strategy

Operationsresources

Operations strategy should build operations capabilities

Operations strategy should learn from

day-to-day experiences

Bottom-up

Market requirements

Operations strategy should satisfy the

organisation’s markets


Slide 1.18

Operations strategy must reflect four perspectives – top-down, bottom-up, market requirements, and operations resources

Top-down

Bottom-up

Corporate strategy

Business strategy

Emergent sense of what the strategy

should be

Operational experience

Operations resources

CapacitySupply networksProcess technologyDevelopment and organisation

Market requirements

QualitySpeed

DependabilityFlexibility

Cost


Slide 1.19

Top-down and bottom-up perspectives of strategy for the Metrology Company

Corporate objectives impact on business objectives which, in

turn, influence Operations Strategy

Top down

Corporate strategy

Business strategy

Bottom up

Day-to-day experience of providing products and services to the market

reveals problems and potential solutions which become formalised

into Operations Strategy

Emergent sense of what the strategy should be

Operational experience

Operations strategy


Slide 1.20

Operations must have fast and flexible technology, supply relationships,

process and staff

Modular strategy provides flexibility and innovation at relatively low

cost

Group building corporate capability in high technology products and

servicesMetrology division competes on ‘fast-to-

market’ innovations

Experiment with ‘modular’ design of key products and components

Customers confused by continual product innovation and costs are increasing

Corporate objectives impact on business objectives which, in turn,

influence OperationsStrategy

Bottom up

Top down

Day-to-day experience of providing products and services to the market

reveals problems and potential solutions which become formalised into Operations

Strategy

Top-down and bottom-up perspectives of strategy for the Metrology Company


Slide 1.21

Market and Resource perspective

• The market requirements perspective – operations strategy should satisfy the organization's markets

• The operations resource perspectives – operations strategy should build operations capabilities


Slide 1.22

Market and Resource perspective


Slide 1.23

Operations strategy reconciles the requirements of the market with the capabilities of operations resources


Market requirements

Strategic reconciliation

OPERATIONS STRATEGY


Slide 1.24

Operations strategy is the strategic reconciliation of market requirements with operations resources

Tangible and intangible resources

Operations capabilities

Operations processes

Operations strategy

decision areas

Customer needs

Market positioning

Competitors’ actions

Performance objectives

Understanding resources

and processes

Strategic decisionsCapacitySupply networksProcess technologyDevelopment and organisation

Required performanceQuality

SpeedDependabilityFlexibilityCost

Understanding markets


Slide 1.25

Market requirements and Operations Resources


Slide 1.26

The ‘market requirements’ and ‘operations resource’ analysis of the lighting company

ResourcesEquipmentStaffReputationRelationships (internal

and external)Experience

CapabilitiesApplication of leading edge lighting and sound technologyArticulation of client requirements

ProcessesIntegration of equipment supply and client requirementsDesign processSupplier liaison process

Operations strategy decisions

LocationVirtual reality technologySupplier developmentEquipment racking systemOrganisational structureStaff meetings

CustomersProfessional theatres (static, low margins)Exhibitions (slow growth, low margins)Conferences etc. (fast growth, higher margins

Market positionTraditionally differentiated on high service level in theatre and exhibition markets, innovation and service in conference market

CompetitorsBig groups dominating professional theatresIn-house operations growing in exhibitions marketConference market still fragmented


Aesthetically innovative designsPresentation adviceHigh customisation of lighting solutionsFast and dependable supply


Slide 1.27

The market perspective analysis of the garment company

PERFORMANCE OBJECTIVES MARKET POSITION Differentiation on:

CUSTOMERS Segmentation on:

Age – youthPurpose – general

COMPETITORS Traditionally weak in:

Innovative productsTime to marketProduct rangeCoordinated launches

promotiondesign innovation

DependabilitySpeed of deliveryProduct mix flexibilitySpeed to market


Slide 1.28

Capabilities

Resources Tangible:

EquipmentStaff

Processes

ReputationRelationships (internal

and external)Experience

Intangible:

Application of leading-edge lighting and sound technologyArticulation of client requirements

Integration of equipment supply and client requirementsDesign processSupplier liaison process

Operations strategy decisionsLocationVirtual reality technologySupplier developmentEquipment tracking systemsOrganisational structureStaff meetings

The operations resource perspective analysis of the lighting company


Slide 1.29

What you HAVE

in terms of operations capabilities

What you NEED

to ‘compete’ in the market


Market requirements

What you WANT

from your operations to

help you ‘compete’

What you DO

to maintain your

capabilities and satisfy

markets



Slide 1.30

Operations strategy is …..

‘… the decisions which shape the long-term

capabilities of the company’s operations and

their contribution to overall strategy through

the on-going reconciliation of market

requirements and operations resources …’


Slide 1.31

Products or services?

Manufacturing or non-manufacturing?

What is operations strategy about?

For profit or not-for-profit?

The sectoral scope of operations strategy


Slide 1.32

Product life cycle

Stage 1: Production Introduction stage

Stage 2: Growth Stage

Stage 3: Maturity Stage

Stage 4: Decline or Extinction Stage

Decline


Slide 1.33

The effects of the product/service life cycle on operations performance objectives

Sal

es

volu

me

Customers

Competitors

Dominant operations

performance objectives

Introduction into market

Growth in market acceptance Maturity of market,

sales level offDecline as market become saturated

Innovators Early adopters Bulk of market Laggard

Likely order winners

Few /none Increasing numbers Stable numbers Declining numbers

Product/service specification

Availability Low priceDependable supply

Low price

Likely order qualifiers

QualityRange

PriceRange

RangeQuality

Dependable supply

FlexibilityQuality

SpeedDependabilityQuality

CostDependability

Cost


Slide 1.34

The effects of the product/service life cycle on the organisation

Sal

es

volu

me

Introduction Growth Maturity Decline

Likely order winners

Product/service characteristics, performance or novelty

Availability of quality products/services

Low priceDependable

supply

Low price

Likely qualifiers QualityRange

Price Range QualityRange

Dependable supply

Dominant operations

performance objectives

FlexibilityQuality

SpeedDependabilityQuality

CostDependability

Cost


Slide 1.35

Technology Life Cycle

• Phase I – Technology Development

• Phase II – Application Launch

• Phase III– Application Growth

• Phase IV– Mature Technology

• Phase V – Technology Substitution

ProcessProduct


Slide 1.36

Qualifiers are the ‘givens’ of doing business

Order Qualifiers & Winners

KEEPING THE

CUSTOMER SATISFIED

DESIGN

QUALITY

RELIABILITY

DELIVERY

SERVICE

CUSTOMISATION

ETC.

Order Winners gain more business the better you are


Slide 1.37

Quality Function DevelopmentQuality Function Deployment is an approach to understanding the customer’s requirements and incorporating it in the design specifications of the product. To determine customer needs, QFD uses the Kano Model.

The Kano Model


Slide 1.38

Delights become Order winners and Order winners become Qualifiers

Adding Delights

Order Winners gain more business the better you are

Low HighNegative

Positive

Neutral

Achieved performance

Com

petit

ive

bene

fit

Time

Delights

Order winners

Qualifiers

Qualifiers are the ‘givens’ of doing business


Slide 1.39

What performance objectives are Qualifiers, Order Winners and Delights ?

Delights

Order winners

Qualifiers

Today Tomorrow

… and in the future ?

???

What is the operation doing today to develop the capabilities which will provide the ‘Delights’ of the future ?


Slide 1.40

The operations strategy matrix

• The internal and external effects of the performance objectives

• The relative priority of performance objectives

• Decision areas

• Structural and infrastructural decisions


Slide 1.41

Decision Areas

Operations strategy decision areas

Capacity Supply network

Process technology

Development and organisation

Structural Issues primarily influence the physical arrangement and configuration of operational resources.

Infrastructural issues influence the activities that take place within the operations structure.


Slide 1.42

Operations strategy decision areas are partly structural and partly infrastructural

CapacityDevelopment and

organisationSupply network Process

technology

Structural issues

Infrastructural issues


Slide 1.43

Requirements• Market Requirements

– Quality– Speed– Dependability– Flexibility– Cost

• Operations Requirements– Capacity

– Supply network

– Process technology

– Development and organisation


Slide 1.44

Operations strategy

Per

form

ance

obj

ectiv

es Quality

Speed

Dependability

Flexibility

Cost

Development and

organisationCapacity

Supply network

Process technology

Decision areas

Mar

ket c

ompe

titiv

enes

s

The operations strategy matrixResource usage


Slide 1.45

Cost General recycling service

Polar diagram for Newspaper Collection (NC) and General Recycling (GR) services

Dependability

FlexibilityQuality

Newspaper collection service

Speed


Slide 1.46

7-Eleven Japan

Sells 15.X as much per store as nearest rival

History of cautious expansion and technical and service innovation

‘Field Counsellors’ spread operations knowledge (also distance training)Expansion by territory to reduce distribution costs

Early use of TIS (Total Information System)

TIS controls stock replenishment by twice a day delivery (sales analysed twice a day)

New systems not Internet-based

New service includes:

Bank terminals

Downloading games

Downloading music to MD

Internet ordering and collection

Largest retailer in Japan


Slide 1.47

COST in terms of minimising…•operating cost•capital cost•working capital

QUALITY of productsand services

Speed anddependability combinedto indicate AVAILABILITY

FLEXIBILITY ofresponse to sales and customer trends

Area dominancereduces distributionand advertising costs

•Location of stores•Size of stores

Distribution centre grouping by temperature

Distribution centresand inventory management systems give fast stock replenishment

TIS allows trends tobe forecast andsupply adjustments made

Common distribution centers give small frequent deliveriesfrom fewer sources

•Number and type of distribution centres•Order and stock replenishment

TIS gives comprehensive and sophisticated analysis of sales & supply patterns daily

•The Total Information System

(TIS)

Information sharingand parenting system spreads serviceideas

Field counsellors with sales data helpstores to minimise waste and increase sales

•Franchisee relationships

•New product/service development•Approach to operations improvement

DEVELOPMENT AND ORGANISATION

PROCESS TECHNOLOGY

SUPPLY NETWORKS CAPACITY

RESOURCE DEPLOYMENT

Ma

rke

t C

om

pe

titi

ve

ne

ss

Pivotal Critical Secondary

7-11 JAPAN


Slide 1.48

Com

petit

iven

ess

The operations function can provide a competitive advantage through its performance at the five competitive objectives

Quality Being RIGHT

Speed Being FAST

Dependability Being ON TIME

Cost Being PRODUCTIVE

Being ABLE TO CHANGEFlexibility


Slide 1.49

First/Business-class cabin,airport lounges, pick-up service

Economy cabin

Wealthy people, businesspeople, VIPs

Travellers (friends and family), vacation takers, cost-sensitive business travel

Wide range, may need to be customised

Standardised cabin

Relatively high Relatively low

Relatively low volume Relatively high volume

Medium to high Low to medium

First/Business class Economy class

Customisation, extra service, comfort features, convenience

Quality (specification andconformance), Flexibility, Speed

Price, acceptable service

Cost, Quality (conformance)

Services

Customers

Service range

Rate of service innovation

Volume of activity

Profit margins

Main competitive factors


Different product groups require different performance objectives


Slide 1.50

‘Installed’ product/service fully operational

End of coreprocessing

Start of coreprocessing

Request for product/service

Receipt ofinformation

Request forinformation

Awareness of need

MilestoneHospital Software producerPresentation of

symptoms

Visit to doctor for advice and tests

Test information confirms diagnosis

Decide on surgery

Enter hospital for surgery

Procedure successfully completed

Patient fully recovered

Installation time

Waiting time

Enquiry time

Core processing time

Customer decision time

Enquiry decision time

Asks for specification and estimates

Receives proposal

Places order

Start of design and coding

Software ‘completed’

Software fully debugged and working

Customer decides new software is needed

Significant ‘milestone’ times for the delivery of two products/services


Slide 1.51

The VW Group operates 45 production plants in eleven European countries and a further seven countries in the Americas, Asia and Africa.

Around the world, more than 336,000 employees produce over 21,500 vehicles or are involved in vehicle-related services on every working day.


Slide 1.52

Operations strategy of volkswagenwerk

1920–2004Before 1939

•Ferdinand Porshe - ‘People’s Car’ 1920s

•Government support 1934 – plant on stream

1939

•1939 War – plant turned to production of war vehicles

•1948 Nordhoff put in charge

1948

•Nordhoff takes half a strategy – people’s car

•Adds emphasis on quality, technical, export, service standards

1949–1958

• Intended strategy realised

•Car ideal for post-war conditions

•Rapid expansion in volume

•No new models (work on new model halted in 1954)


Slide 1.53

1959–1964

• Increased competition and changes in tastes

•Response - increased advertising - design started for 1500

•Original strategy unchanged in essentials 1960–1964

• 1500 model introduced

•Sales increased but profits squeezed

1965–1975

•Pressures of competition become severe

•New strategy from audi - front wheeled drive, stylish, watercooled

•Other lines dropped

•Production rationalised on world basis

•Marketing emphasised performance, reliability and service

1976–1989

•Golf established as market leader

•Continued emphasis on technical excellence

•Old designs periodically fashionable

•Main European competitor seen as Fiat

•Some pressure from Japanese manufacturing


Slide 1.54

1990–1996

•Increasing pressure on costs from Japanese manufacturers

•German labour costs and exchange rate are disadvantageous

•Latterly European recession increases pressure

•Cost cutting measures – East European plant – aggressive purchasing

1997–2000

•Developing separate branding strategies to occupy different market segments

•Develop separate products from common platforms to reduce cost

•Continue aggressive cost reduction and process improvement

2001

•Modify common platform policy to ease brand erosion

2002/5

•Renewed cost pressures focus attention on input costs also hit by scandals!!

2006

•Sales recovering, speculation over Russian plant


Slide 1.55

1946–1951Implementing

strategy

Building up capacity and capability Simple design

Standardised designSystemisation of resources andprocess

Emerging, any working

vehicle

Maturing, simple robust vehicle

Minor reconfiguration for new model

Maturing, sophisticated performance, quality

New 1500 model


Market requirements

1952–1958Continuity of

strategy

1959–1964Minor change and

continuity


Market requirements, operations resources and strategic reconciliation at VW over 70 years


Slide 1.56

1965–1970Search for

viable strategyFragmented acquisition of new resources

Multiple new designs

Defined rangeAdapt best practices from enlarged group

Uncertain rejection of VW traditional

products

Clarifying around style, quality and

variety

Accommodate new models and acquisitions

Segmentation around performance, style and

variety

Product development

paths


Market requirements

1971–1975Emergent strategy

1976–1979Continuing with minor changes




Slide 1.57

1990–1996Major change

(internal)

Drastic reconfiguration to increase efficiency, reduce costs

Design for low- cost manufacture

Common product platforms

Continuous process improvement and cost reduction

Increasingly competitive

around price

Branding with price, quality, and

style

Lean process improvement and more low-cost locations

Increasingly competitive around price and innovationModular design


Market requirements


strategy


strategy




Slide 1.58

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